Extended shutdown could hurt the US credit rating: Fitch

By Taylor Telford

Updated 10 Jan 2019 — 3:46 AM, first published at 2:44 AM

Washington | As the partial US government shutdown dragged into its 19th day, Fitch Ratings warned that an extended shutdown might damage the country's Triple-A credit rating if lawmakers are unable to pass a budget or manage the debt ceiling.

While President Donald Trump spars with Democratic leaders over $US5.7 billion for a border wall and funding for nine government agencies, hundreds of thousands of workers are caught up in the shutdown, furloughed or working without being paid, and much of the federal government is paralysed.

Shortly after Trump took his fight for the wall to prime-time TV, Fitch's global head of sovereign ratings, James McCormack, said that the nation's mounting debt is weighing on the United States and that the government can't grapple with the rising debt level during a shutdown.

Fitch's global head of sovereign ratings, James McCormack, said that the nation's mounting debt is weighing on the US and that the government can't grapple with the rising debt level during a shutdown. J. Scott Applewhite\AP

"I think people are looking at the CBO [Congressional Budget Office] numbers. If people take the time to look at that you can see debt levels moving higher; you can see the interest burden in the US government moving decidedly higher over the next decade," McCormack said in an interview with CNBC's Squawk Box Europe. "There needs to be some kind of fiscal adjustment to offset that, or the deficit itself moves higher, and you're essentially borrowing money to pay interest on the debt. So there is a meaningful fiscal deterioration there, going on in the United States."

If the shutdown is still in effect by March 1 "and the debt ceiling becomes a problem several months later, we may need to start thinking about the policy framework, the inability to pass a budget . . . And whether all of that is consistent" with a Triple-A rating, McCormack added at a later event in London, according to CNBC. "From a rating point of view it is the debt ceiling that is problematic."

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The shutdown is already the second-longest in US history, behind the 21-day shutdown under President Bill Clinton that extended from December 1995 to January 1996.

In commentary published Friday, according to MarketWatch, Fitch said the fate of the US credit rating depended on whether the impasse behind the shutdown decayed into a "more pronounced destabilisation of fiscal policymaking".

The only time the country's credit rating has been downgraded was in 2011, when Standard & Poor's dropped the US rating after the government raised the debt ceiling to allow trillions in additional spending.

"Evidence of greater dysfunction in fiscal policymaking could still contribute to negative pressure on the US rating - (and) this is especially the case as deficits continue to increase," Fitch wrote in its commentary.